1. Can the Federal Reserve Save the Environment?  with Kyoung-Gon Kim (HNU), Journal of Cleaner Production 423 (2023): 138730
This study examines the environmental effect of monetary policy, particularly within the framework of global value chains (GVCs). Given the escalating climate concerns and the urgent need for sustainable solutions, it is crucial to investigate the environmental consequences of monetary policy decisions which directly influence domestic production and international input-sourcing activities. As the monetary policy is likely to be associated with a variety of economic factors influencing environmental outcomes, it is critical to introduce an exogenous shock that reflects variations in monetary policies to derive unbiased causal estimates. We thus adopt a proxy-vector autoregression (VAR) approach with U.S. monetary policy surprise as an exogenous instrument. We uncover compelling evidence that one standard deviation of contractionary monetary policy surprise leads to a reduction in overall emissions by approximately 0.5 percent. However, the more significant and concerning result is the observed rise in emission intensities by 0.2 percent. We highlight the key mechanism underlying this outcome: higher domestic credit costs discourage firms from effectively outsourcing production tasks abroad, thereby increasing the generation of air pollutants per unit of output arising from reduced production efficiency. The identification of a previously unrecognized environmental externality calls for a reevaluation of policy approaches and underscores the importance of integrating environmental considerations into monetary policy frameworks.

2. Harmonizing Welfare and Externalities: Unraveling the Product Versus Process Standards Puzzle in Regulatory Policy  with Difei Geng (UARK), Economics Bulletin (2023), Volume 43, Issue 3, pages 1320-1327
There are two types of regulatory standards depending on the externalities they are designed to address. One is product standards targeting negative consumption externalities; the other is process standards addressing negative production externalities. Notably, the institutional arrangements for the two types of standards can be different in practice. For instance, the World Trade Organization applies national treatment (NT) to product standards, but its case law favors mutual recognition (MR) for process standards. This paper evaluates the welfare implications of this wellknown product/process distinction regarding regulatory standards. We show that, on welfare grounds, the rule of NT performs relatively better under product standards, while MR is relatively more desirable under process standards. This result provides a welfare-based justification for adopting differential institutional rules on regulatory standards of different nature.

3. Regional Heterogeneity in Environmental Quality: The Role of Firm Production Networks and Trade  with Jacob Howard (MITRE) and William Ridley (UIUC), Forthcoming, Journal of the Association of Environmental and Resource Economists
We study howglobalization shapes regional environmental accounts by developing a general equilibrium model capturing the effect of trade liberalization on the spatial distribution of firms and regional disparities in environmental quality within countries in a setting of multi-stage f irm-to-firm trade. Reductions in trade costs cause more firms to collocate in regions with better access to foreign markets. Consequently, more pollution is generated in such regions while spatial selection and outsourcing activities through endogenously established production networks lower these regions’ emission intensities. Additionally, we establish that reductions in international trade costs give rise to a positive environmental spatial spillover effect mediated through networks, which reduces disparities in emission intensities between regions with differential access to foreign markets. Our findings thus highlight the role of supply networks between firms as a key factor linking globalization and differences in regional environmental quality.

Do Exchange Rates Affect the Environment? with William Ridley (UIUC), R&R at the Canadian Journal of Economics
Exchange rates are central to explaining the environmental consequences of globalization as they govern the effective prices of imported inputs as well as the price competitiveness of exports, and consequently, firms' optimal production decisions and the generation of emissions. We study the joint roles of exchange rates, foreign input sourcing, and export orientation in determining environmental outcomes across countries and industries. For industries relying intensively on foreign-sourced inputs and focusing on exporting intermediate outputs, we show that a stronger domestic currency leads to lower emission intensities (emissions per unit of output), while the opposite relationship holds with respect to an industry's reliance on final export sales. Our findings suggest that macroeconomic factors and cross-border input-output linkages have implications for the environmental quality.

Do Competitive Markets Cleanup the US Electricity Sector?: Evidence from the Southwest Power Pool,  with Daniel Kaffine (CU Boulder), R&R at the Energy Journal
In the US, there has been a movement towards competitive electricity markets with system-operator auctions. However, the impact of such market reforms on non-market outcomes like emission rates remains unclear.  We decompose how competition in wholesale electricity markets can affect carbon emission rates of electricity generating units (EGUs) through technique, composition, and sorting effects. Using event-study and difference-in-difference strategies, we quantify the Day-Ahead Market's (DAM) environmental impact in the Southwest Power Pool and assess the importance of each channel, with Pennsylvania, New Jersey, and Maryland interconnection serving as the comparison group. We find DAM reduced average carbon emission rates of EGUs by 0.033 tons per megawatthour, a roughly 4% reduction.  This reduction is primarily driven by the sorting effect: emission-intensive and uneconomical EGUs retire after the DAM market reform. This corresponds to an annual avoidance of 7.66 million tons of carbon dioxide emissions, worth approximately $383.4 million in avoided damages.

Thirsty for Trade: How Globalization Shapes Virtual Water Trade  with William Ridley (UIUC), R&R at the Environmental and Resource Economics
We investigate the distributional implications of trade policy (import tariffs) for virtual water embodied in traded agricultural products. To do this, we undertake an econometric analysis and counterfactual simulation exercise using a structural gravity framework to quantify the impacts of (i) preferential tariff schemes and (ii) hypothetical global tariff liberalization for virtual water trade in 15 major primary agricultural commodities. We find that tariff preferences have been responsible for increased virtual water exports from developing water-scarce countries predominantly located in Africa and Asia. Conversely, tariff preferences are responsible for higher levels of virtual water imports by countries in the Americas, Europe, and the Middle East. However, we estimate that further trade liberalization would reverse this pattern and benefit many water-scarce countries in the Global South in securing their domestic water resources.

The Economics of Space Development with Akhil Rao (Middleburry), R&R at the Oxford Handbook
Water ice on the Moon is the closest extra-terrestrial source of spacecraft propellant. Lunar-derived propellant can thus be a valuable resource for space exploration and development, with orbital satellites a potential near-term market. While rocket launches to develop orbital and lunar infrastructure impose environmental damages on Earth, satellites can also mitigate drivers and consequences of climate change. Lunar propellant may also reduce the need for rocket launches to replenish satellite fleets and reduce orbital collision risk, offsetting some of their initial environmental impact. The economic development of outer space in the coming century and its effects on human welfare therefore depend on how markets invest in satellites and lunar mining, and how governments intervene to shape cislunar development for humanity’s benefit. To answer these questions we develop an economic theory of cislunar development involving lunar ice mining and satellite propellant demands, terrestrial capital investments, and environmental externalities. While space development can improve human welfare on Earth and may necessitate government support, it may also harm welfare and necessitate regulation. We describe the structure of welfare-enhancing space development policies and their implications for climate change and orbital sustainability, terrestrial inequality, and human expansion into the solar system.

Do Supply Chain Positions and Trade Competitiveness Jointly Matter for Better Air Quality and Carbon Mitigation?  with William Ridley (UIUC)
We study the joint roles of positions in the global value chains (GVCs) -- defined as a weighted-average distance of an industry from upstream primary inputs and downstream final consumption -- and trade competitiveness altered by exchange rate variation in determining industrial emission intensity of carbon dioxide, sulphur and nitrogen oxides. Using a panel of data on emissions and GVC positioning for 32 industries across 26 countries, we first find that the direct environmental effect of being upstream (downstream) in the GVCs is buffered as being located farther away from the primary inputs (final consumers) and by the extent of trade competitiveness. Second, an improved import but worsened export competitiveness arising from domestic currency appreciation may yield environmental improvements as industries participate in the vertically longer production networks.


 Works in Progress 
  Inter-regional Electricity Trade and Welfare Gains: Evidence from ERCOT, with Scott Holladay and Connor Neff (U of Tennessee)
  US Power Grid and Trade, with Daniel Kaffine and Sergey Nigai (CU Boulder)
  Environmental Regulation and Firm Networks, with Scott Holladay (U of Tennessee), Jay Hyun (U of Alberta) and Gueyon Kim (UCSC) 
  Wildfire Smoke PM2.5 and Virtual CO2 Trade via US Power Grid, with Daniel Kaffine (CU Boulder)
  Wildfire Smoke PM2.5 and Roadkill: Evidence from Colorado Counties, with Daniel Kaffine (CU Boulder)
  Energy Production, Habitat Fragmentation and Roadkill, with Hyunseok Jung (UARK) and Daniel Kaffine (CU Boulder)
  Wildlife Crossings and Accidents, with Hyunseok Jung and Tandem Young (UARK) 

 Others in the Pipeline 
 Regional Environmental Disparity: A Paradox of Domestic Supply Chains  with Jacob Howard (MITRE) and William Ridley (UIUC)
This paper studies the role of domestic supply chains in strengthening regional environmental disparity given an imbalanced economic geography. Motivated by the facts that core regions in the U.S. have experienced improved environmental quality, measured as emission per output, at a faster rate than peripheral regions over the past decades both at the state- and county-level, we show that the ease of within-region firm-to-firm trade can be one of the causes behind the scene. From a general equilibrium framework, we demonstrate that the assortative matching between productive firms within the core regions significantly improves production efficiencies, which in turn widens the gap of regional environmental quality from the peripheral regions. We further show that the regional environmental inequity can be misstated without considering the channel of optimally established domestic supply chains.

Does Paying Our Workers Better Help Improve Air Quality and Mitigate Carbon Emissions?  with William Ridley (UIUC)
Would the environmental quality improve as workers are paid higher? If so, how come? This paper sheds light on these simple but not straightforward questions by investigating how manufacturing emissions per value added (i.e., emission intensity) of the 18 European Union countries have changed from 1999-2009 particularly via the shift of positions in the global value chains (GVCs) in response to the rise of labor costs. We find that an increased labor compensation per worker and per hour may improve emission intensity of carbon dioxide, sulfur and nitrogen oxides by shifting positions of GVC participants closer to the beginning stage of the vertical networks. This means that GVC participants become to serve less labor and energy-intensive but more value-generating tasks, which entails the improvement of air quality and carbon mitigation.

Market Frictions and Directed Technical Change in an Open Economy 
This paper shows how an imbalanced allocation of property rights determine the direction of innovation in an open economy. In a small economy, the enlarged scale of production arising from international trade, and a higher relative world price of exports direct technology towards export-oriented sector. In a large economy, the direction of technical changes is ambiguous. The gross substitutability of imports and exports consumed by households and friction-induced scale effects direct technical changes towards the export sector. However, the gross complementarity as well as diminishing terms of trade lead technical changes to the import sector. The path dependence or the path reversal of technological progress thus relies on the relative significance of the two counteracting forces.

Optimal Water Allocation in a Large Open Economy
This paper studies the optimal water-right allocation regime in a large open economy and explores a practical policy to maximize welfare. I first analyze the effect of property right concentration on the water-intensive export sector in terms of the volume of international trade and the level of social welfare. Second, I study the optimal water-right allocation regime across production sectors. Lastly, I investigate the roles of an international trade policy and a market mechanism in improving welfare. I verify that the misallocation of water-rights in favor of an export sector encourages international trade but reduces welfare. I find that the export sector needs to be restricted with respect to its allotment of water-rights to maximize welfare. To do this, I suggest an import tariff and a frictionless water-right market to be introduced.